Opec+ agrees to stick to oil output targets amid improving China outlook

The Opec+ alliance of 23 oil-producing countries has agreed to roll over its existing oil output cuts as the fuel demand outlook in China — the world’s second-largest economy and top crude importer — improves.

"The [Joint Ministerial Monitoring Committee] reaffirmed their commitment to the [declaration of co-operation] which extends to the end of 2023," said the group, which slashed its collective output by 2 million barrels per day in October last year.

The committee reviewed crude oil production data for the months of November and December and urged all participating countries to achieve "full conformity".

The next meeting of the JMMC is scheduled for April 3.

The announcement comes as oil prices have rallied by nearly 13 per cent since falling to a low of $76 last month, after China lifted Covid-19 restrictions and hopes grew that easing inflation would slow the rate of interest rate increases by central banks.

Brent, the benchmark for two thirds of the world’s oil, was down 3 per cent at $82.90 a barrel at 11.26 pm UAE time.

The International Monetary Fund on Tuesday marginally raised its global economic growth forecast for 2023, but said that more work needed to be done for a full recovery to take place.

The fund, which raised its economic growth estimate for this year to 2.9 per cent from a previous forecast of 2.7 per cent, said a depreciating US dollar, coupled with global monetary policy tightening, was starting to cool demand and inflation.

Meanwhile, global oil demand is set to reach record levels this year, supported by fuel demand recovery in top manufacturing hub China.

The International Energy Agency (IEA) has said the Asian country will account for nearly half of its 2023 oil demand growth forecast of 1.9 million bpd.

Research firm Energy Intelligence expects demand to grow to 101.2 million bpd this year, surpassing a previous record of 100.6 million bpd in 2019.

Although China represents 10 per cent to 15 per cent of global oil and gas demand, the country's recovery has not been entirely priced in by global commodity markets, according to Japanese bank MUFG.

The existing commodity prices do not “tally up” with China’s economic growth and “rapidly normalising” mobility in the country, said Ehsan Khoman, head of research — commodities, ESG and emerging markets at MUFG, in a report.

Energy markets are set to tighten further as an EU embargo on Russian crude products comes into effect on February 5.

The Group of Seven advanced economies is also considering a price cap on refined products from Russia, similar to the one the alliance imposed on Russia’s crude exports at the end of last year.

“Once the EU embargo on Russian seaborne fuel exports kicks in, we are likely to see prices for gasoline and especially diesel remain supported by tightening supply,” said Ole Hansen, head of commodity strategy at Saxo Bank, this week.

“Russia may, however, struggle to offload its diesel to other buyers, with key customers in Asia being more interested in feeding their refineries with heavily discounted Russian crude, which can then be turned into fuel products selling at the prevailing global market price,” said Mr Hansen.

Russian oil exports declined by 200,000 bpd last month after an EU crude embargo and the G7 price cap on the country’s crude shipments came into effect on December 5, according to the IEA.

The latest Opec+ meeting, the group’s third over the last four months, underlines its growing role in maintaining oil market stability as oil and gas producers in Europe and North America face supply constraints and rising investor pressure.

The supergroup would take a decision “that serves balancing the market”, Suhail Al Mazrouei, the UAE's Minister of Energy and Infrastructure, told reporters on the sidelines of an event in Abu Dhabi this month.

“With China reopening, hopefully, we will see a pick-up in the [crude] demand.”

Oil prices have been volatile since the start of Russia’s military offensive in Ukraine last February. After surging to a 14-year high of nearly $140 a barrel last March, Brent is currently trading in the $80 to $85 range.

“The biggest dangers to the oil price complex are actually coming from the potential demand destruction because of the Ukraine and Russia war and also under-investment,” Karen Kostanian, oil and gas analyst at Bank of America (BofA) Global Research, said at a media round-table last week.

Opec+ may have held its output steady at the last meeting fearing the demand destruction that would come with a recession, Mr Kostanian said.

Meanwhile, oil and gas exploration activity picked up pace last year after the pandemic had stalled or delayed several projects.

New oil and gas discoveries in 2022 could create at least $33 billion in value at Brent prices of $60 a barrel, according to Energy consultancy Wood Mackenzie.

While exploration well numbers were less than half the levels seen in pre-pandemic years, the total volume of 20 billion barrels of oil equivalent matched the average annual volumes from 2013 to 2019, Wood Mackenzie said.

“The highest value came from world-class discoveries in a new deepwater play in Namibia, as well as resource additions in Algeria and several new deepwater discoveries in Guyana and Brazil,” said Julie Wilson, director of global exploration research at Wood Mackenzie.

“The average discovery last year was over 150 million barrels of oil equivalent, more than double the average of the previous decade.”

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Fireball

Moscow claimed it hit the largest military fuel storage facility in Ukraine, triggering a huge fireball at the site.

A plume of black smoke rose from a fuel storage facility in the village of Kalynivka outside Kyiv on Friday after Russia said it had destroyed the military site with Kalibr cruise missiles.

"On the evening of March 24, Kalibr high-precision sea-based cruise missiles attacked a fuel base in the village of Kalynivka near Kyiv," the Russian defence ministry said in a statement.

Ukraine confirmed the strike, saying the village some 40 kilometres south-west of Kyiv was targeted.

If you go

The flights
Etihad (etihad.com) flies from Abu Dhabi to Luang Prabang via Bangkok, with a return flight from Chiang Rai via Bangkok for about Dh3,000, including taxes. Emirates and Thai Airways cover the same route, also via Bangkok in both directions, from about Dh2,700.
The cruise
The Gypsy by Mekong Kingdoms has two cruising options: a three-night, four-day trip upstream cruise or a two-night, three-day downstream journey, from US$5,940 (Dh21,814), including meals, selected drinks, excursions and transfers.
The hotels
Accommodation is available in Luang Prabang at the Avani, from $290 (Dh1,065) per night, and at Anantara Golden Triangle Elephant Camp and Resort from $1,080 (Dh3,967) per night, including meals, an activity and transfers.